Question: Steps needed for calculation please. 2.1 A ZAR20 million loan outstanding to the Malawi government is currently in arrears with Afro Bank, After extensive negotiations,

Steps needed for calculation please.

2.1 A ZAR20 million loan outstanding to the Malawi government is currently in arrears with Afro Bank, After extensive negotiations, Afro Bank agrees to reduce the interest rates from 10 percent to 6 percent and to lengthen the maturity of the loan to 10 years from the present 5 years remaining to maturity The principal of the loan is to be paid at maturity, There will no grace period and the first interest payment is expected at the end of the year, a) If the cost of funds is 5 percent for the bank, what is the present value of the loan prior to the rescheduling? Interest payments in years 1 - 5: 0.10 % ZAR20m = ZAR2m PV = PVA .5x-(ZAR2m) + PV-5x-(ZAR20m) = ZAR24,3295 million

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